Topic Number 313 - Qualified Tuition Programs (QTPs)
A qualified tuition program (QTP), also referred to as a section 529 plan, is a program established and maintained by a state, or an agency or instrumentality of a state, that allows a contributor either to prepay a beneficiary's qualified higher education expenses at an eligible educational institution or to contribute to an account for paying those expenses. Eligible educational institutions can also establish and maintain QTPs but only to allow prepaying a beneficiary's qualified higher education expenses. After December 31, 2017, qualified higher education expenses include tuition expenses in connection with a designated beneficiary's enrollment or attendance at an elementary or secondary public, private, or religious school, i.e. kindergarten through grade 12, up to a total amount of $10,000 per year from all of the designated beneficiary's QTPs.
An eligible educational institution is generally any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the Department of Education.
Contributions to a QTP on behalf of any beneficiary can't be more than the amount necessary to provide for the qualified higher education expenses of the beneficiary. Contact the program's trustee or administrator to determine the program's contribution limit. Contributions made to a QTP aren't deductible.
The benefits of establishing a QTP are:
- Earnings accumulate tax free while in the account.
- The beneficiary doesn't generally have to include the earnings from a QTP as income.
- Distributions aren't taxable when used to pay for qualified higher education expenses (including tuition at an elementary or secondary public, private, or religious school). However, if the amount of a distribution is greater than the beneficiary's qualified higher education expenses (including tuition at an elementary or secondary public, private, or religious school), a portion of the earnings is taxable.
You'll receive a Form 1099-Q.pdf from each of the programs from which you received a QTP distribution. The amount of your gross distribution (box 1) shown on each form will be divided between your earnings (box 2) and your basis, or return of investment (box 3). Form 1099-Q should be made available to you by January 31, 2019.
For additional information, refer to Chapter 8 of Publication 970.pdf, Tax Benefits for Education.